It all seemed so simple when former minister Nick Smith promised sweeping reforms to local government.

Rates had risen by almost 7 per cent a year since 2003, debt had steepled from $2 billion back in 2000 to more than $8b and threatened to hit $11b in three years time.

With council pay rates in the news, and Hamilton's V8 race debacle front of mind, councils were to be given new riding instructions to ensure they concentrated on core functions and kept costs under control.

Rates would be curbed, debt avoided, and out would go the existing purpose clause with its reference to the so-called "four well-beings": social, economic, cultural and environmental. In would come a new directive to steer councils away from the things central government and the private sector could do, in favour of those things "only councils can do".

But with a new minister in David Carter, and with councils and media probing the effects of the new law, the Local Government Act 2002 Amendment Bill is raising more questions that it answers.

WHAT IS CORE BUSINESS?

Most confusing is the definition of what is, and is not, the core business of councils under the law change.

Even as the new law was being unveiled Prime Minister John Key was struggling to give a clear steer, and councils around the country expressed concern.

Obviously footpaths, rubbish, sewerage, parks and water are in.

But he did not rule out apparently non-core and cultural events. Fireworks displays that sent ratepayers cash up in smoke were okay, as was the Ellerslie Flower Show, the Rugby World Cup, the World of Wearable Art ...

Even the Auckland V8 race, once the stand-out example of bad council decision-making in Hamilton, has now been given the Government's blessing as well as $2.2m boost from taxpayers.

Mr Carter says he backs the law proposed by Mr Smith and ticked off by Cabinet. But while he says he has no amendments planned at this stage, there is a sense he is quietly taking the sharp edges off the law and will manage away its inconsistencies; something that will take another step before the select committee.

Mr Smith's original wording that required councils to provide "good quality local infrastructure, public services and regulatory functions at the least possible cost to households and business" has been changed to a less onerous one that requires services to be the "most cost-effective". But that still leaves the WCC concerned because it sets an absolute standard in the word "most" that can be challenged in court and which does not allow for other considerations.

"Even if the Government is relaxed about councils meeting this test, there are always others who will seek to have a crack in court," says Wellington City Council strategic executive Allan Prangnell, who is fronting the council's reaction to the law.

And the council argues in its submission that the new purposes clause moves in the opposite direction from the modern trend, which sees a role for cities as economic engine-rooms of the 21st Century.

Both Mr Carter and Mr Key say it is for local government to determine whether something is in their core area of responsibility or not, and they are comfortable with the $10.6m spent on the V8 race in Pukekohe. But as one Wellington council staffer said: "does that mean a V8 race can be a core function in Auckland but not in Hamilton?"

Mr Carter says that is not the test to be applied.

"The reason the law is not specific on what's in and what's out is that it is not going to be determined by central government ... it is still for council to determine what activities they undertake."

They would have to decide whether an activity "brings significant benefit to its community".

They could fight off a legal challenge if they undertook "a rigorous enough cost-benefit analysis of the activity for them to make an informed decision".

The problem with the current "four well-beings" clause was that it could be all things to all people, he said.

Councillors had told him the new wording gave them "the ability to say no to some activities that we are asked to undertake on behalf of our communities".

"The legislation is not saying, you must only do core activities. But it is saying when you move beyond core activities, think very carefully, analyse the situation very carefully, so you are delivering benefit to your community and not a cost to your community," Mr Carter said.

But that has left councils scratching their heads about how they should focus on "things only councils can do" leaving central government and the private sector to do their thing.

Wellington City Council's Mr Prangnell points to something more fundamental than a V8 race; social housing.

"Should it be a local government function? Because central government is involved through Housing NZ and there are private providers. If councils don't provide this, will central government step in?"

Mr Carter is clear that councils can provide social housing and stay within the new law.

In Christchurch local government had been a long-standing investor in the sector and the second biggest housing owner.

"This legislation is not saying to the Christchurch City Council: sell off your housing, you can no longer be involved in that".

"There's some essential services that can only, and should only, be delivered by central government. There's some services then that can be adequately delivered by private enterprise. And then there's a section in the middle that can only be delivered by local government sewerage, water, waste etc."

But there was a "grey area either side of that" and the law did not attempt to define what was absolutely the responsibility of local government.

Supporting Mr Carter's more restrained stance is the regulatory impact statement, prepared by officials as background to new laws.

It says the change "is likely to have a symbolic effect and should not affect council business as usual".

It also makes it clear, however, that ritzy new activities are not the cause of rising rates and high debt.

"There is no clear quantitative evidence to suggest that the (current law) has resulted in a proliferation of new activities, or that local government is undertaking a wider group of functions," it said.

Any new activities tended to be small and not very costly.

DEBT LEVELS

The report also points out that debt will peak in 2015 and then start falling.

Mr Carter has softened the Government's previous hardline rhetoric there, too, accepting rising debt was partly the result of higher standards imposed by central government in areas such as water quality.

"I am comfortable with the level of debt incurred by councils overall."

That was why the Government had not imposed a "hard cap" on rate increases or debt levels, he said.

A strict rule, forcing cuts, could drive councils into an "infrastructure deficit" that could eventually fall back on central government.

But Mr Prangnell said the tighter fiscal approach could still undermine spending on key maintenance and infrastructure, because they were the most expensive items for councils and the easiest to cut because they were often "the least visible" to ratepayers. "But they are the very thing that Government has said it wants councils to focus on."

The solution was to keep the current broad purposes statement but look at ways to address the real causes of rate increases, including how to pay for 21st century infrastructure from rates.

"The cost of infrastructure, particularly for smaller councils with large areas to look after, may not be affordable for local government."

It had been accepted for decades that the right to access good education and health services meant subsidising rural and provincial areas with lower populations.

"Perhaps the time has come to ask whether core infrastructure needs similar treatment."

Speaking after the policy was announced, Local Government New Zealand president Lawrence Yule seen as a strong advocate of amalgamation in Hawke's Bay also identified infrastructure spending as an issue.

"We've got to have a conversation in New Zealand about what standards we want for things whether it's water, waste water, roads etc."

Elsewhere, the new law's provisions that allow greater flexibility for Government intervention with troubled councils rather than the single "nuclear" option of sacking them and appointing a commissioner has not attracted as much criticism as the definition of core services.

AMALGAMATION

There is also wide acceptance, including from Mr Prangnell and the Wellington council, that the rules dealing with council restructuring and amalgamations needs updating. There has not been a successful amalgamation under the current law, and Banks Peninsula had to take the extraordinary step of dissolving itself, before its merger with Christchurch could go ahead.

But the proposed trigger for an amalgamation has drawn flak.

It required the Local Government Commission to be convinced of significant community support, defined as support by a large proportion of the community (though that is not defined) or "the leaders of the community".

"Does that mean the Chamber of Commerce? Church leaders? Eminent people? On the face of it, this seems highly undemocratic," Mr Prangnell asks.

But Mr Carter defends the measure, saying anybody not just influential citizens could kick off the process. And he had been assured by mayors in the Wairarapa, who back amalgamation, that they could convince the commission there was widespread community support for it.

The bill would also require 10 per cent of affected ratepayers to sign a petition within 40 days, in order to force a vote to block a council merger.

Opponents say that is too onerous, especially for big urban areas.

For instance in the wider Wellington region opponents would need to gather 1000 signatures a day for 40 days to force a vote that would head off an Auckland-style "super city".

But Mr Carter believes that if there were "a high degree of angst" the numbers would be there.

Opponents could start gathering signatures long before the commission made its commendation, which triggers the formal 40 day period.

But Mr Prangnell warns it is not easy to block a merger.

"The proposed rules lead to an amalgamation presumption and takes away the democratic check of a vote. Under the new system there is no assured vote you have to fight for it."

* Submissions on the new law close on July 26.

BY THE NUMBERS:

There are 78 councils nationwide, making up 4 per cent of GDP.

They spend $7.5 billion a year and manage $100b in assets.

Local government debt has risen from $1.8b in 2000 to more than $8b but will peak at $11b in 2015 and start falling. Rate rises averaged 6.85 per cent a year since 2003 against inflation of 3 per cent.

THE MAIN CHANGES:

The clause that defines a council's purpose will change from the "social, economic, environmental and cultural well-being of communities" to "good quality local infrastructure, local public services and performance of regulatory functions in a way that is most cost-effective for households and businesses".

Expenditure growth will be limited to the rate of inflation and population growth, except in extraordinary events.

Benchmarks will be set for income and debt levels.

Councillors would be able to set employment and remuneration policy.

Mayors will be able to appoint a deputy, as Auckland can now, establish committees and put forward draft plans.

Amalgamations will be made simpler and can be called for by community leaders or a large proportion of the community.